With the announcement of merger and acquisition (M&A) guidelines and recommendations on the auction of 800 MHz (technically long term evolution [LTE] Band 5, referred to as 850 MHz), and the in-principle approval of spectrum sharing and trading, there appears to be a very distinct possibility of Band 5 emerging as the mainstream LTE frequency division duplex (LTE FDD) band in the Indian market. LTE FDD deployment on 850 MHz can be used along with 2300 MHz for a dual-band time division duplex-FDD network, and over a period of time to a multi-band network.

The 850 MHz frequency is not a mainstream band for LTE deployment globally, and has been utilised mainly in Asian markets such as South Korea and the Philippines with reported trials in the US. However, the equipment and device ecosystem is much more evolved than the 700 MHz Asia-Pacific Telecommunity band that India has opted for. The current mainstream smartphones from vendors like Samsung, Nokia and Apple also support Band 5 LTE and this ecosystem will become more developed in the near future.

Operators currently using the 850 MHz band for providing CDMA services have initiated the process of migrating their subscribers to their GSM network, starting with low-data usage subscribers. They are also offering dual-band CDMA-GSM handsets to support the migration process, and removing inactive users to reduce the load on the CDMA network. If the existing CDMA band becomes relatively free due to the aforementioned initiatives and a migration road map, 4G operators may go for spectrum sharing/ roaming agreements with CDMA operators and acquire airwaves in the 850 MHz spectrum auction so that they have access to 6.25 MHz to 7.5 MHz of 850 MHz (5 MHz for LTE FDD and 1.25 MHz/2.5 MHz for CDMA fallback). This enables a rapid pan-Indian roll-out of 4G services on the 850 MHz LTE FDD band, with 2300 MHz LTE TDD providing in-fill coverage and capacity.

Near-term technology deployment options for Indian operators

Indian operators have been considering multiple spectrum-technology combinations based on their current spectrum assets, market-specific data strategy as well as the longer-term spectrum and technology evolution road map. These include:

•4G-only operators: Their primary focus is on LTE services, with voice support on LTE and no underlying support for GSM. No significant M&A activity is expected among 4G-only operators given the requirement to pay the market value of spectrum and high debt levels of potential targets.

•2G+3G operators: These players hold spectrum in the 1800 MHz and 900 MHz bands, along with 2100 MHz in some circles, but do not have access to 2300 MHz spectrum. They are expected to focus on establish a stronger 3G business in the short term to monetise the data potential of their existing user base. This will mean deploying 900 MHz for HSPA in circles with 2100 MHz. The only M&A and spectrum management initiatives by these operators will be towards acquiring stand-alone operators with a high-value customer base in the 900 MHz band. Further, they may increase their current 5 MHz spectrum holding in the 2100 MHz band to 10 MHz through spectrum trading.

•2G+4G operators: These companies have an 1800 MHz regional footprint, with plans of moving directly to 700 MHz LTE FDD in the long term. They have an option to go for an acquisition to establish a pan-Indian footprint as well as economies of scale. They may also launch HSPA in the 900 MHz band, though the re-farming process will be staggered across years and not provide a national footprint/scale benefit in the short term. Further, these operators can use recently acquired contiguous LTE FDD spectrum in the 1800 MHz band in circles where they already have an 1800 MHz GSM footprint. However, the capex requirement will be higher to achieve equivalent coverage. They can also take advantage of a fallback option in the 1800 MHz band, which allows for voice on LTE. Operators are expected to opt for 700 MHz  band, and in the near term will focus on developing their 2G footprint in the 1800 MHz band, and achieving operational profitability.

•2G+3G+4G operators: These would include operators which already have spectrum in the 900 MHz, 1800 MHz, 2100 MHz and 2300 MHz bands. The category includes new entities which may emerge due to a merger of two or three operators with assets across multiple bands. With rationalisation of the pooled holdings, such an entity can offer GSM on 1800 MHz, HSPA on 2100 MHz and LTE on 850 MHz (supported by 2300 MHz in specific merger situations). There is a high probability for such a merger given the weak financial situation of some operators, and the promoter groups planning an exit from non-core businesses.

In summary, the M&A guidelines and the recent spectrum auction are expected to result in select transactions, with operators also considering spectrum sharing and trading as a means for gaining access to spectrum to develop their technology road map. Also, the emerging spectrum demand-supply situation is expected to result in 850 MHz becoming the primary band for LTE FDD in India, until spectrum in the 700 MHz band is available.

Based on a November 2013 report by Capitel Partners